SAN FRANCISCO (AP)--Google Inc. CEO Eric Schmidt on Tuesday denied recent media and analyst reports that the online search engine leader is gearing up to compete directly with eBay Inc.'s pioneering PayPal service, although he acknowledged some kind of electronic payment product is in the works.

Although he declined to provide any details about the project, Schmidt made it clear it won't trespass on PayPal's turf.

"We do not intend to offer a person-to-person, stored-value payments system," Schmidt said during an interview with The Associated Press.

That description fits PayPal, a 6-year-old service that creates "digital cash" by accepting credit card payments from its users and then delivering the payments to a designated recipient. The recipient then can either get real cash or leave all or part of the balance in a PayPal account for future transactions.

As e-commerce has blossomed, PayPal has thrived, growing from 24 test users in 1999 to 72 million accountholders through March. Looking to profit from the fees that PayPal collects from completing online transactions, San Jose-based eBay bought the service for $1.3 billion in 2002.

The Internet industry began buzzing about the possibility of Google competing with PayPal after the subject surfaced last week during an e-commerce conference hosted by Piper Jaffray. The Wall Street Journal subsequently reported Google hoped to roll out a rival payment service later this year, quoting people familiar with the company's plans.

Other media outlets, including The Associated Press, followed up with similar stories and stock market analysts released reports mulling the possible financial consequences of a showdown between Google and eBay, one of the search engine's biggest advertisers.

Google consistently declined comment until Schmidt tried to set the record straight Tuesday.

The Mountain View-based company's recent incorporation of a subsidiary called Google Payment Corp. fed the perception that a battle with PayPal loomed. But Schmidt indicated that subsidiary is working on something that won't stray far from its search engine.

"The payment services we are working on are a natural evolution of Google's existing online products and advertising programs which today connect millions of consumers and advertisers," Schmidt said. He declined to elaborate.

American Technology Research's David Edwards believes Google's payment product initially will be tied to its shopping comparison service, Froogle. The company also plans to let people view online videos stored in an index, prompting some other observers to predict the service will be designed to sell content found through its search engine.

The speculation about Google's plans have raised investor fears that PayPal's growth might taper off, squeezing eBay's profits. EBay shares have fallen by 3 percent so far this week, declining 34 cents Tuesday to close at $36.90 on the Nasdaq Stock Market.

At the same time, investors have been hoping Google will develop another source of revenue besides online advertising, which accounted for almost all the company's $369 million profit during the first three months of this year. Google shares are up 2.7 percent so far this week, gaining $1.14 Tuesday to close at $287.84 on the Nasdaq.